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Why Rich Pay More Taxes

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Why Rich Pay More Taxes

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Diving into the rich pool from “The Economist” online website Obama and few other governments in the Euro Zone would like to tax the rich more to help pay off government deficits. They have some support from the very rich like Warren Buffett on this approach. Wealthy Germans and French have signed petition in favour of higher taxes. Luca Di (Ferrari owner) says its “right” for the rich to pay more. Three crucial questions the article is asking: What share of tax do the rich actually pay? What has happened to this tax burden over recent decades? And what does the evidence suggest about how the rich respond to changes in taxation? Stats from the article:

“The rich pay a substantial share of taxes across the developed world, and this share has risen in recent decades. According to the OECD, a think-tank, the top 10% of earners contribute about a third of total tax revenues—28% in France, 31% in Germany and 42% in Italy. Rich Britons pay about 39% of total taxes while America’s wealthiest households contribute a larger share to government than in any other OECD country, at 45%. Looking just at income tax, the share paid by the top 1% of earners in America rose from 28% in 1988 to 40% in 2006, in Britain it rose from 21% in 1999 to 28% this year. America’s greater dependence on its rich is due in part to their good fortune. As of 2007, the total earnings of the top 1% equalled 74% of all taxes paid, up from 24% in 1976. The rich are a juicy target because their taxes could conceivably cover far more of the budget than before. The trend was particularly pronounced in America and Britain. Ronald Reagan campaigned by touting tax cuts as a means to rescue the American economy from stagnation. During his administration, top marginal tax rates dropped in steps from 70% to 28%. In Britain Margaret Thatcher slashed the top marginal income tax rate from 83% to 40% between 1979 and 1988. These tax systems remain progressive, but much less so than they used to be. Marginal...

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